10-000267PL Department Of Business And Professional Regulation, Division Of Real Estate vs. Peter Joseph Esposito Status: Closed Recommended Order on Friday, May 28, 2010.

Summary: The Department could not establish by clear and convincing evidence that Respondent was in violation of statutes.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF REAL ESTATE, )

)

Petitioner, )

)

vs. ) Case No. 10-0267PL

)

PETER JOSEPH ESPOSITO, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice to all parties, a final hearing was

conducted in this case on March 11, 2010, via video

teleconference with sites in Tallahassee and Orlando, Florida,

before Administrative Law Judge R. Bruce McKibben of the

Division of Administrative Hearings. The parties were

represented as set forth below.

APPEARANCES

For Petitioner: Donna Christine Lindamood, Esquire

Department of Business and

Profession Regulation

400 West Robinson Street

Orlando, Florida 32801-1757

For Respondent: Daniel Villazon, Esquire

Daniel Villazon, P.A.

1420 Celebration Boulevard, Suite 200

Celebration, Florida 34747

STATEMENT OF THE ISSUES

The issues in this case are stated in two counts set forth

in the Administrative Complaint: Count I--whether Respondent is

guilty of fraud, misrepresentation, concealment, false promises,

false pretenses, dishonest conduct, culpable negligence, or

breach of trust in a business transaction in violation of

Subsection 475.624(2), Florida Statutes (2006); and Count II--

whether Respondent is guilty of failing to exercise reasonable

diligence in developing an appraisal report in violation of

Subsection 475.624(15), Florida Statutes (2006). Counts III

through IX of the Administrative Complaint were dismissed on the

day of the final hearing held in this matter.

PRELIMINARY STATEMENT

On or about July 8, 2009, Petitioner, Department of

Business and Professional Regulation, Division of Real Estate

(hereinafter the "Division"), filed an Administrative Complaint

against Respondent, Peter Joseph Esposito. Respondent returned

the Election of Rights form seeking a formal administrative

hearing. The Administrative Complaint and Election of Rights

form were forwarded to the Division of Administrative Hearings

("DOAH") on January 19, 2010, and assigned to the undersigned

Administrative Law Judge so that a formal administrative hearing

could be conducted. The hearing was held on the date set forth

above, and both parties were present and represented by counsel.

At the final hearing, the Division called two witnesses:

Sara Kimmig, an investigative specialist with the Division; and

Ben Cole, III, a certified general real estate appraiser.

Petitioner's Exhibits 1, 2, 3 (subject to corroboration by

non-hearsay evidence), 4, and 8 were admitted into evidence.

Official recognition was taken of Petitioner's Exhibits 5, 6

and 7.

Respondent called one witness: Peter Joseph Esposito. No

independent exhibits were offered into evidence by Respondent.

A transcript of the final hearing was ordered by the

parties. The Transcript was filed at DOAH on April 8, 2010.

The parties requested and were allowed 30 days, i.e. , until

May 10, 2010, to submit proposed recommended orders. Each party

timely submitted a Proposed Recommended Order, and each was duly

considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. The Division is responsible for monitoring all licensed

and certified real estate appraisers in the state. It is the

Division's duty to ensure that all appraisers comply with the

standards set forth in relevant statutes and rules.

2. Respondent is a certified residential real estate

appraiser. He has been an appraiser since 1998 and has been

certified since 2002. There have been no prior actions taken

against his professional license or certification. Respondent

moved to Orange County, Florida, in 1980 and his entire

appraiser practice has been in the greater Orlando area.

3. On or about May 25, 2006, Respondent issued a real

estate appraisal report (the "Appraisal") on a property located

at 2119 Blossom Lane, Winter Park, Florida ("the Subject

Property"). Several different approaches can be utilized by

appraisers when assessing a property's value. Using the sales

comparison approach for appraising residential properties,

Respondent assigned a value of $750,000 to the Subject Property.

When Respondent applied the cost approach to the property, it

resulted in a value of $765,000. The income approach was not

used in the Appraisal.

4. The Division received an anonymous complaint about the

Appraisal some time after it was completed. 1 After conducting

its investigation pursuant to the complaint, the Division

asserts that in preparing and issuing the Appraisal, Respondent

engaged in fraud, misrepresentation, concealment, false

promises, false pretenses, dishonest conduct, culpable

negligence, or breach of trust. The Division also alleges that

Respondent is guilty of having failed to exercise reasonable

diligence in developing the Appraisal.

The Subject Property

5. The Subject Property is a one-story, single-family

residence located on .42 acres in Winter Park, Florida. The

Subject Property is located one block away from Lee Road, a

heavily traveled four-lane road. The rear of the Subject

Property is located on a finger of water identified as a canal

that connects the property to Lake Killarney. Lake Killarney is

a large lake suitable for motorboats and skiing. There is a

dock on the rear of the Subject Property which can be used to

secure a boat.

6. There are 2,551 gross square feet of living area in the

Subject Property. The house has a two-car garage, two screened

porches, and a fireplace. The home is 15 years old, with an

"effective" age of three years. An effective age indicates how

well a home has been maintained, upgraded and taken care of

during its existence.

7. While the Subject Property is located in a nice,

upscale neighborhood, the value of its location is somewhat

diminished by the view across the canal. The far side of the

canal houses a two-story, red brick office building with an

asphalt parking lot. The view is not completely consistent with

a typical neighborhood environment. At the time of the

Appraisal, however (according to uncontroverted testimony by

Respondent), the view across the canal was obscured by foliage

and trees located on the bank of the canal near the boat dock.

Ownership and Sale History of the Subject Property

8. At the time Respondent prepared the Appraisal on behalf

of his client, American Heritage, the Seller's Disclosure and

Latent Defects Statement indicated the owners were a couple by

the name of Huong Thu Do and Nguyen Do. The Sales Contract

itself listed the seller as the Thu/Nguyen Trust. No buyer is

listed on the Sales Contract. Mr. and Mrs. Do had not signed

the contract. It is not unusual for Respondent to have an

unsigned contract; his client is normally the lender, 2 rather

than the buyers or sellers. The contract price on the

Thu/Nguyen contract was $699,000.

9. There were also other sales contracts associated with

the Subject Property at about the same time. An "As Is Contract

for Sale and Purchase" listed Do Huong Thu and Do Nguyen

(presumably the same persons named in the unsigned contract

mentioned above) and Beth Schuldiner/SPI, Inc., and/or Assigns

as the Seller. This contract, signed by someone as Attorney in

Fact for the Sellers, had a contract price of $575,000. There

is then an Assignment of the Contract to Beth Schuldiner/SPI,

Inc., on April 29, 2006.

10. At the time of the Appraisal, the Subject Property was

listed in the MLS report as having sold for $575,000 in March

2006. The Appraisal mentioned the MLS report and the sale date,

but did not indicate the sale price. It was an oversight by

Respondent not to put the sale price in the Appraisal. The

$575,000 sale of the Subject Property, however, was never

recorded in the public records of Orange County, Florida.

11. The Closing Settlement Statement for the sale

transaction listed Huong Thu Do and Nguyen Do as Seller and

Aracely McFarland (yet another person involved in the

transaction) as Buyer. The settlement statement indicates a

contract sales price of $699,000 and states that $123,079.50 is

due to Seller as an "Assignment Fee to Steele Property

Investments" (which the Division opines is the SPI, Inc.,

mentioned in conjunction with Beth Schuldiner in the sales

contracts). Taking away the assignment fee, the price would be

approximately $575,000.

12. Ultimately, a general warranty deed was recorded which

listed Huong Thu Do and Nguyen Do as Sellers, and Aracely

McFarland as the Buyer. The warranty deed was recorded in the

Orange County public records on June 27, 2006. By way of a Quit

Claim Deed recorded August 8, 2006, McFarland deeded the

property to Beth Schuldiner as trustee of McFarland Trust.

13. The confusing and somewhat contradictory sales

contracts and deeds may suggest some degree of shenanigans

surrounding the sale of the Subject Property. It is clear

Respondent knew of and had done work for Schuldiner previously.

He said that Schuldiner sometimes gave him a bonus of up to $100

to expedite his appraisal work. (Interestingly, Respondent made

only about $350 for the Appraisal at issue.) There is no

evidence that Respondent was involved in or aware of the various

transactions mentioned. Respondent was hired by a lender to

appraise the Subject Property.

14. It is unsubstantiated conjecture to suggest that some

collusion between Respondent and anyone else related to the sale

was going on in this transaction. There is, in fact, no proof

whatsoever that the allegedly shady deal was actually improper

at all.

The Appraisal

15. Respondent, in his cost approach valuation of the

Subject Property, listed the site value at $250,000. A general

appraiser who viewed the Subject Property to review Respondent's

findings determined the site value to be $160,000. The general

appraiser's finding was based on the amount appearing in the

county property appraiser's records. Such records, while they

are some indication of the value of a property, are not meant to

be a final word or completely reliable source. Respondent,

conversely, took the property appraiser's value and compared it

to other properties in the area, e.g., the site at 115 Killarney

was valued at $229,000; the one at 139 Killarney was $224,000;

a Rippling Avenue site was $292,000; and an Interlachen site was

listed at $301,000. Based on those property values, plus the

phenomenon of great growth in land values at that time,

Respondent made a good faith estimate of the site value for the

Subject Property. His approach is reasonable.

16. Respondent's sales comparison approach to the

appraisal used five comparable properties (or Comps) for

comparison purposes. It is typical to use at least three

comparables, but in special cases an appraiser would use more.

Respondent considered this a special case.

17. Comp 1 was a much smaller, older home 3 located directly

across from, but not directly on, Lake Killarney. There is no

commercial property nearby. That being the case, Respondent

discounted the location value for Comp 1 by $35,000 in an effort

to make its overall value similar to the Subject Property.

Respondent explains this discount as a necessary adjustment

based on location and difference in land values. Other positive

and negative adjustments were made, but the net adjustment for

the property (vis-à-vis the Subject Property) was $10,000.

18. Comp 2 was a somewhat smaller home than the Subject

Property but with actual lake frontage, as opposed to a canal

connecting to the lake, on Lake Killarney. This property is

located some two miles from the Subject Property in a different

neighborhood. Adjustments were made to this property totaling

$27,400, although no adjustment was made for the site, even

though Comp 2 is directly on the lake, rather than on a canal.

19. Comp 3 was a somewhat larger home located less than

half-a-mile from the Subject Property. An $85,700 adjustment

was made to make this Comp more comparable to the Subject

Property.

20. Comp 4 is considerably larger than the Subject

Property and is not located directly on the water. This

property has access to Lake Catherine, but that lake is a much

smaller and less usable body of water than Lake Killarney.

An adjustment was made by Respondent to account for the larger

size of this Comp, but such adjustments are a judgment call made

by the appraiser.

21. Comp 5 is a similarly sized, though older, two-story

home located a little over two miles from the Subject Property.

This property is located in a much nicer neighborhood, on a much

larger lot than the Subject Property. Again, an adjustment was

made to make the property more comparable to the Subject

Property.

22. Respondent did not use a very similar property located

on the same street as the Subject Property, because he was

concerned as to whether the sale of that home had been an arm's

length transaction. His refusal to use this property as a Comp

is reasonable.

23. Respondent's cost approach method of appraising the

property involved an estimation of the cost of the site on which

the home was located; the cost of the house itself, minus

depreciation; and the addition of any improvements. A site

value can be derived using any one of various methods. If a

vacant comparable site exists in the area, it can be used to

estimate value of the site being appraised. However appraisers

are seldom lucky enough to find such a vacant lot. The

abstraction method is another approach, using a comparable site

and subtracting the contributory value of improvements. Also, a

county tax assessor's estimate on the tax rolls could be used.

24. The tax rolls at that time listed a value of $160,000

for the Subject Property. Respondent assigned a value of

$250,000 for the site, based on his review of various properties

listed in the Microbase (a tool used by appraisers to ascertain

site values of properties). The Microbase property values

should generally be consistent with county records, but that is

not always the case. The figure decided upon by Respondent was

an extrapolation of existing site values using recent trends.

There were no specific references made in the Appraisal as to

the use of those existing sites, however.

25. A sales comparison approach to appraise the Subject

Property was later done by a certified general appraiser (in

2009). Respondent is a certified residential appraiser. The

general appraiser used one of Respondent's comparative sales

(Comp 1) and four other homes for comparison purposes. While

opining that appraisals are a judgment call and not an exact

science, the general appraiser felt like the comparable sales he

used were more closely alike the Subject Property than the

comparative sales used by Respondent.

26. The general appraiser's comparative properties, while

certainly having merit as more similar to the Subject Property,

were not contemporaneously reviewed with the Subject Property in

2006 (when Respondent did his Appraisal). While showing that

the Appraisal could have been done differently, and, arguably,

better, the general appraiser's report does not invalidate

Respondent's work.

27. The general appraiser opined that Respondent made

three primary errors in the Appraisal: 1) Not disclosing the

commercial property located near the Subject Property;

2) Identifying the Subject Property as "lake front" when it was

actually on the canal connecting the lake; and 3) Not

appropriately adjusting the values in the comparative properties

used to appraise the Subject Property.

28. As to the commercial property, Respondent testified

that at the time of the Appraisal, the commercial building was

hidden by the trees along the back of the Subject Property. The

pictures in the Appraisal do not show a view of the canal, so

there is no way to confirm what foliage existed at that time.

29. As to the identification of the property as lake

front, the MLS listing used by real estate agents lists the

property as "waterfront," with the waterfront type as

"canal-fresh lake." As far as water is concerned, the

description is a matter of opinion by the appraiser or real

estate agent. There is no definitive guideline as to what

constitutes waterfront.

30. As to the adjustments made by Respondent to the

comparable sales properties, it is clear the general appraiser

made significantly larger adjustments than those made by

Respondent. However, the reasons set forth for the general

appraiser's adjustments are not convincing. Respondent's

adjustments are equally valid to those made by the general

appraiser.

31. There is no evidence of collusion by Respondent with

anyone associated with the sale of the Subject Property. There

is no evidence that Respondent's client, the seller or the buyer

believed the Appraisal was improper or incorrect. There is no

evidence that the amount determined by Respondent for valuation

of the Subject Property was wrong.

CONCLUSIONS OF LAW

32. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding pursuant to Section 120.569 and Subsection 120.57(1),

Florida Statutes (2009).

33. The burden of proof is on Petitioner to show, by clear

and convincing evidence, that Respondent committed the acts

alleged in the Administrative Complaint. Ferris v. Turlington ,

510 So. 2d 292 (Fla. 1987). The clear and convincing evidence

standard is used in the instant case because the action is a

penal licensure proceeding. Munch v. Department of Professional

Regulation , 592 So. 2d 1136 (Fla. 1st DCA 1992).

34. Clear and convincing evidence is an intermediate

standard of proof which is more than the "preponderance of the

evidence" standard used in most civil cases, but less than the

"beyond a reasonable doubt" standard used in criminal cases.

See State v. Graham , 240 So. 2d 486 (Fla. 2nd DCA 1970). Clear

and convincing evidence has been defined as evidence which:

Requires that the evidence must be found to

be credible; the facts to which the

witnesses testify must be distinctly

remembered; the testimony must be precise

and explicit and the witnesses must be

lacking in confusion as to the facts in

issue. The evidence must be of such weight

that it produces in the mind of the trier of

fact a firm belief or conviction, without

hesitancy, as to the truth of the

allegations sought to be established.

Slomowitz v. Walker , 429 So. 2d 797, 800 (Fla. 4th DCA 1983)

(citations omitted).

35. The Division is given the right to discipline an

appraiser's license for certain violations. Section 475.624,

Florida Statutes (2006), states in pertinent part:

The board may deny an application for

registration or certification; may

investigate the actions of any appraiser

registered, licensed, or certified under

this part; may reprimand or impose an

administrative fine not to exceed $5,000 for

each count or separate offense against any

such appraiser; and may revoke or suspend,

for a period not to exceed 10 years, the

registration, license, or certification of

any such appraiser, or place any such

appraiser on probation, if it finds that the

registered trainee, licensee, or

certificateholder:

* * *

(2) Has been guilty of fraud,

misrepresentation, concealment, false

promises, false pretenses, dishonest

conduct, culpable negligence, or breach of

trust in any business transaction in this

state or any other state, nation, or

territory; has violated a duty imposed upon

her or him by law or by the terms of a

contract, whether written, oral, express, or

implied, in an appraisal assignment; has

aided, assisted, or conspired with any other

person engaged in any such misconduct and in

furtherance thereof; or has formed an

intent, design, or scheme to engage in such

misconduct and committed an overt act in

furtherance of such intent, design, or

scheme. It is immaterial to the guilt of

the registered trainee, licensee, or

certificateholder that the victim or

intended victim of the misconduct has

sustained no damage or loss; that the damage

or loss has been settled and paid after

discovery of the misconduct; or that such

victim or intended victim was a customer or

a person in confidential relation with the

registered trainee, licensee, or

certificateholder, or was an identified

member of the general public.

* * *

(15) Has failed or refused to exercise

reasonable diligence in developing an

appraisal or preparing an appraisal report.

36. Disciplinary actions, such as contemplated in the

above referenced statute, may be based only upon those offenses

specifically alleged in the Administrative Complaint. See

Cottrill v. Department of Insurance , 685 So. 2d 1371 (Fla. 1st

DCA 1996); Kinney v. Department of State , 501 So. 2d 129, 133

(Fla. 5th DCA 1987); and Hunter v. Department of Professional

Regulation , 458 So. 2d 842, 844 (Fla. 2d DCA 1984). A statute

imposing a penalty is never to be construed in a manner that

expands the statute. Hotel and Restaurant Commission v. Sunny

Seas No. One , 104 So. 2d 570, 571 (Fla. 1958).

37. Count I alleges Respondent is guilty of fraud,

misrepresentation, concealment, false promises, false pretenses,

dishonest conduct, culpable negligence or breach of trust in a

business transaction. See § 475.624(2), Fla. Stat. (2006). The

evidence presented by the Division fails to establish, by clear

and convincing evidence, that Respondent is guilty of any of

those actions. The evidence presented at final hearing

addressed only whether Respondent's appraisal techniques were

reasonable (under the nebulous authority of Uniform Standards of

Professional Appraisal Practice, or USPAP). 4 Nonetheless, even

if the 2005 USPAP standards did apply, the evidence is

insufficient to prove that Respondent was in violation. There

is no evidence of fraud, nor evidence of misrepresentation,

concealment, false promises, false pretenses, dishonest conduct,

culpable negligence or breach of trust by Respondent in the

business transaction.

38. Count II alleges failure by Respondent to exercise

reasonable diligence in developing the Appraisal. See

§ 475.624(15), Fla. Stat. (2006). The evidence to that effect

falls well short of clear and convincing. Rather, the Division

proved only that Respondent could have prepared the Appraisal

differently and, arguably, better, using other comparables from

the area.

39. The Division did not meet its burden of proof in this

matter.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that a final order be entered by Petitioner,

Department of Business and Professional Regulation, Division of

Real Estate, dismissing the Administrative Complaint against

Respondent, Peter Joseph Esposito.

DONE AND ENTERED this 28th day of May, 2010, in

Tallahassee, Leon County, Florida.

R. BRUCE MCKIBBEN

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 28th day of May, 2010.

ENDNOTES

1/ The complainant was not identified during final hearing.

There was no evidence presented that any party to the

transaction complained about the Appraisal or believed it to be

erroneous in any fashion.

2/ The Division did not contact the lender as part of its

investigation, even though the lender was the entity that relied

upon the Appraisal.

3/ Adjustments can be made to properties used, as comparables,

based on the home's effective age. However, there is no

industry standard for such adjustments, and the adjustments are

a judgment call made by the individual appraiser based upon

their own observation of the property. As stated by the

Division's expert witness, "Well, I estimated it differently,

but that would be an opinion, a matter of opinion."

4/ The USPAP standards have not been properly promulgated into

Florida Rules since 1991. The 1991 version of USPAP is clearly

not relevant to the instant matter, but the 2005 standards,

which would have been applicable to the time frame in question

in this matter, have not been incorporated by statute. Thus, it

is not possible to legally apply the standards to the instant

action.

COPIES FURNISHED :

Thomas W. O'Bryant, Jr., Director

Division of Real Estate

Department of Business and

Professional Regulation

400 West Robinson Street, Suite N801

Orlando, Florida 32801-1757

Reginald Dixon, General Counsel

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Donna Christine Lindamood, Esquire

Department of Business and

Professional Regulation

400 West Robinson Street, Suite N801

Orlando, Florida 32801-1757

Daniel Villazon, Esquire

Daniel Villazon, P.A.

1420 Celebration Boulevard, Suite 200

Celebration, Florida 34747

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.